At a press event in San Francisco recently, Samsung (NASDAQOTH: SSNLF) revealed a prototype of the Simband -- a wearable device that can track biometric data, such as heart rate, body temperature, oxygen levels, and hydration. That's a big step up from most fitness bands, which monitor simpler information like steps taken and calories burned. The Simband can also be charged from a small battery pack that clips to the device, so it doesn't have to be removed while charging.
Unlike Samsung's consumer-facing Galaxy Gear and Galaxy Gear 2 smart watches, the Simband is a flexible, open platform that can be modified by other companies for various needs. The device is modular -- meaning that its sensors can be swapped out by third-party manufacturers to create customized wearable devices.
The Simband's sensors. Source: Samsung
The health data from the Simband platform can be delivered, through Wi-Fi and Bluetooth, to other apps, gadgets, and services via Samsung's online service SAMI (Samsung Architecture Multimodal Interactions).
What does Simband mean for Apple?
Many industry watchers consider Samsung's Simband to be a preemptive strike against Apple (AAPL 0.52%), which is expected to launch Healthbook, a new health-tracking app, in iOS 8. Healthbook will reportedly capitalize on the motion-sensing features of the new A7 chip, which debuted in the iPhone 5S, and possibly interact wirelessly with the company's long-rumored "iWatch".
Both Apple and Samsung have been rapidly expanding in the medical device industry. Apple has held meetings with the FDA and hired major talent from medical device and sensor companies. Samsung acquired several medical imaging companies and launched GEO, its own line of imaging equipment, last March. Samsung then confidently claimed that it would become one of the world's largest medical equipment companies by 2020, with $10 billion in annual revenues coming from medical devices.
But Samsung doesn't plan to sell the Simband to consumers. Instead, it will license it as a reference design to other manufacturers. That's a play straight out of Google's (GOOG -1.96%)(NASDAQ: GOOGL) playbook -- rather than face Apple head-on in smartphone hardware, Google released its open source OS, Android, to divide and conquer the smartphone market.
In other words, individual companies licensing Simband technology might only claim slivers of the market on their own, but Simband as a platform -- like Android in smartphones -- could become the dominant platform in wearables, thanks to its modular flexibility.
What does Simband mean for Nike?
Nike's (NKE -0.74%) popular FuelBand fitness trackers could also be threatened by the Simband.
Nike, Jawbone, and Fitbit currently use proprietary technologies that are not compatible with one another. If the wearables market gets flooded by new competitors licensing Samsung's Simband technology, these three companies would end up with proprietary tech in a market dominated by a single standard -- similar to how BlackBerry lost the smartphone market to a fragmented universe of Android smartphones.
The other problem is that licensing technological architecture -- such as ARM Holdings' mobile processors, Qualcomm's hardware templates for smartphones, and Google Android -- results in the production of cheaper, easier-to-manufacture devices. Thanks to those licenses, lower-end Android smartphones can cost less than $200 unlocked -- a third of the price of the original 8GB iPhone, which launched at $599 in 2007.
We can see similar demand in the fitness band market. Some consumers were notably disappointed when Nike's $150 FuelBand SE did not include a previously rumored heart rate monitor. A competing product from Adidas, the miCoach Smart Run, included a heart-rate monitor but cost $399 -- which made it impractically more expensive than mid-tier smartphones, high-end tablets, and low-end laptops.
Nike's Fuelband SE. Source: Nike
If Samsung's Simband gains a foothold with wearable makers, cheaper fitness bands with comparable features to higher end devices will arrive -- just as cheaper Android phones and tablets eventually started matching the specs of higher-end Apple devices.
The Foolish takeaway
In conclusion, Samsung seems to have learned that tackling the consumer wearables market head-on with devices like the Galaxy Gear is the wrong approach. After all, why release a single device when it can provide the foundation for many more?
According to research firm Canalys, the smart bands market -- which includes smart watches and fitness bands -- is expected to grow 350% year over year to 8 million shipments worldwide by the end of 2014, hit 23 million units by 2015, and top 45 million units by 2017.
To capitalize on that whopping growth, investors should follow these wearable devices closely and see which company's approach will come out on top -- Apple's Healthbook for iOS devices, simpler fitness bands from Nike and Jawbone, or Samsung's modular Simband.
